Note 12—Subsequent Event

On February 6, 2017, the Company entered into a Loan Agreement with a syndicate of investors (the “Lenders”) pursuant to which the Company borrowed $17.5 million (the “Loan Amount”). The loan matures on December 29, 2017. Interest accrues at a rate of 5% per annum until June 30, 2017 and then increases to a rate of 10% per annum. Other significant terms of the Loan Agreement include the following:

$15 million of the Loan Amount will be used to pay the Initial Civil Penalty provided for in the Consent Decree in accordance with the payment requirements set forth in the Consent Decree. The remainder of the Loan Amount will be used for general corporate purposes and working capital needs. The first installment of $4 million was paid on February 7, 2017.

The Lenders received warrants to purchase 252,161 shares of the Company’s Class B common stock with an aggregate exercise price equal to $7.5 million based on an exercise price of $34.70 per share. The exercise price was based on the weighted average trading price for the Class B common stock for the five trading days preceding the funding date. The warrants expire at the earlier of December 31, 2018 or a liquidation event (as defined).

If any portion of the Loan Amount remains outstanding after June 30, 2017, the Lenders will receive additional warrants on a monthly basis with an aggregate exercise price equal to 10% (dropping to 7.5% in September 2017) of the then outstanding Loan Amount. The exercise price will be based on the weighted average trading price for the Class B common stock for the ten trading days preceding the warrant issue date.

To the extend the warrants are held by a Lender at the time of exercise, the exercise price will paid by reduction of the outstanding Loan Amount.

The fair value of the warrants totaled approximately $4,040,000 and will be amortized to interest expense over the term of the Loan Agreement. The Company estimated the fair value of the warrants using the Black-Scholes option pricing model with the following assumptions: Risk-free rate – 1.16%; dividend yield – 0%; Volatility – 96.68% and expected term – 1.92 years.

Expected volatility is based on historical volatility of the Company’s common stock; the expected term until exercise represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero.

The unaudited condensed consolidated pro forma balance sheet of the Company below has been prepared as if the Loan Agreement had occurred on January 31, 2017:

STRAIGHT PATH COMMUNICATIONS INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(In thousands)

				Pro Forma Adjustments
	Historical			Notes	Amount			Pro Forma

Assets
Current assets:
Cash and cash equivalents	$	7,837		(A)	$	2,500		$	10,337
Restricted cash		-		(A)		15,000			15,000
Trade accounts receivable, net		40				-			40
Inventory		643				-			643
Prepaid expenses and other current assets		919				-			919
Total current assets		9,439				17,500			26,939
Intangible assets		365				-			365
Other assets		111				-			111
Total assets	$	9,915			$	17,500		$	27,415

Liabilities and Equity (Deficiency)
Current liabilities:
Trade accounts payable	$	1,016			$	-		$	1,016
Accrued expenses		368				-			368
Loan payable, net of debt discount		-		(A)		17,500			13,460
				(B)		(4,040	)
FCC consent decree payable		15,000				-			15,000
Deferred revenue		197				-			197
Income taxes payable		221				-			221
Total current liabilities		16,802				13,460			30,262
Settlement payable - stockholders		7,200				-			7,200
Deferred revenue - long-term portion		80				-			80
Total liabilities		24,082				13,460			37,542
Equity (Deficiency)
Straight Path Communications Inc. stockholders' equity:
Preferred stock		-				-			-
Class A common stock		8				-			8
Class B common stock		117				-			117
Additional paid-in capital		26,073		(B)		4,040			30,113
Accumulated deficit		(37,781	)			-			(37,781	)
Treasury stock		(428	)			-			(428	)
Total Straight Path Communications Inc. stockholders' equity (deficiency)		(12,011	)			4,040			(7,971	)
Noncontrolling interests		(2,156	)			-			(2,156	)
Total equity (deficiency)		(14,167	)			4,040			(10,127	)
Total liabilities and equity (deficiency)	$	9,915			$	17,500		$	27,415

Notes to Pro Forma Consolidated Balance Sheet

(A)

To record the proceeds from the Loan Agreement. According to the terms of the Loan Agreement, $15 million of the Loan Amount will be used to pay the Initial Civil Penalty. As such, $15 million has been classified as restricted cash.

(B)

To record the value of the warrants issued under the Loan Agreement. The value of the warrants will be amortized to interest expense over the term of the Loan Agreement.